A ‘detrimental limbo’ of political uncertainty is becoming increasingly costly to new oil producer on the South American continent, Guyana, where project approval delays for a half-billion barrel offshore development has already resulted in more than 50 million barrels being removed.
“The Payara well, located 190km from the shore of Georgetown, is expected to have 500 million barrels of recoverable oil. Discovered in 2017, Payara was the third of what is now 16 major oil findings made by the Stabroek Consortium off the Guyanese coast,” state analysts, Dr Remi Piet and Arthur Deakin.
Norway-based energy research and business intelligence company Rystad Energy has said the project approval delays have already removed more than 50 million barrels in production that could have been achieved if the project had been sanctioned in 2019. “The project partners are hoping to receive approval later this year, but in our updated base case scenario we expect the Payara-Pacora fields to be sanctioned in the first half of 2021 and achieve first oil by 2024. Any further delay could cost the stakeholders – the project partners and Guyana – dearly.”
A more than 4-month delay in elections results has thrown the country of just over 750,000 people into a state of uncertainty and is contributing to the delay in government approvals for oil development projects. The governing coalition party is already at the receiving end of US sanctions as Secretary of State, Michael Pompeo announced visa restrictions last week for government and other officials believed to be complicit in attempts to thwart the will of the people.
“Until the next administration is sworn in the government will remain in this detrimental limbo that is freezing the country’s economic momentum,” Piet and Deakin said.
Economist Bobby Gossai Jr. said Guyana had an expected exponential growth from 2020 to 2028 which would have been driven primarily by both the direct and indirect positive effects of the burgeoning oil and gas sector. In an Op-Ed published on OilNOW today, he said, “The operators and investors in Guyana’s offshore blocks will want to ensure that there is a strong macroeconomic environment and effective investment policies and regulations that are in place to protect the growth and development of the hydrocarbons sector.”
Rystad Energy said in its base case, the Guyanese government could generate around $4.4 billion in oil revenues by 2028 – within five years after Payara production start-up. However, the revenues diminish quite substantially if the project faces delays. “With a six-month delay, the project would generate around $800 million less than what it would in our base case, and around $1.6 billion less with a 12-month delay.”
Piet and Deakin believe the Payara development approval will be the first major decision for the new administration and is something investors will be keenly observing.
“From the outside looking in, the delay of the Payara project could portray an image that Guyana is desperately trying to avoid: an unreliable country lacking the stability requested by foreign investors,” they said.
Nearby in Mexico, President Lopez Obrador’s volatile attitude towards infrastructure and energy projects has led to a 24 percent decline in foreign direct investment in 2019. Piet and Deakin said like Mexico, an unstable, delay-prone regulatory process in Guyana will limit the arrival of new revenues and could deprive the country of much needed regulated private investments.
“The people of Guyana must know the potential cost of the coalition’s continued obstinacy to the future of the country. Failure to abide by the will of the voters is putting in jeopardy the oil wealth,” former Guyanese Minister of Natural Resources, Robert Persaud, told OilNOW.
“Approval delays for Payara-Pacora could have a domino effect on numerous other projects in the Stabroek Block. This would in turn have a substantial impact on the investments made in Guyana, thereby also dragging down job creation and GDP generation in the country,” says Palzor Shenga, Rystad Energy’s senior upstream research analyst.